New program offers help to those sick of rising insurance costs
The problem with insurance is that you are paying for it, whether you use it or not.
This gripe is one of those usually met with a dismissive shrug of agreement followed by a quasi-comforting statement like, "Yeah, but what are you gonna do?"
But for those sick of the ever-increasing costs of health insurance, there is, in fact, something you can do.
It is now possible to pay for only the health care you use without being saddled with large monthly payments to an insurance company.
Some are slowly getting used to the idea of health savings accounts, which were developed in 2003 as a part of Medicare reform legislation.
Although heralded by some as the future of health care in America, HSAs are still looked upon warily by many.
"They talked about these at work," said Dan Kearns, a programmer for insurer Progressive Corp. "It's interesting, but I'm happy with the insurance I have."
Still others have boasted about their savings with HSAs, illustrating that one of the latest innovations in health insurance remains appealing to specific groups of customers.
Many self-employed small-business owners have grown tired this year of what Bob Fruchter calls "getting clipped" by health insurer.
He paid close to $1,000 a month for health insurance for his son, his wife and himself.
Although the coverage was good, Fruchter's problem was one that most people have with health insurance: His family was healthy.
"I was paying $900 a month most months, and not using it," he said.
This isn't to say Fruchter didn't value the peace of mind that the coverage gave him, nor is he suggesting that people go without health insurance.
But when he did the math, he discovered he spends $10,800 a year on health insurance for his family who only had about $3,000 in medical expenses in 2004.
"So, how much did I blow, about $7,800?" he asked.
This year, he began looking into the idea of a health savings account.
HSAs are actually made up of two components: the actual savings account paired with a high-deductible health plan.
This would allow consumers and employers to replace their typical expensive, but comprehensive health plans with cheaper policies designed primarily to cover catastrophic injury or illness.
The idea is that consumers then will take the money they save on monthly premiums and deposit it in the savings account, which can be used to pay for health care.
The money in the account rolls over, so the balance builds year to year.
The goal is to have enough in the account to cover one's yearly deductible, which is the amount of money the consumer must spend before the insurance kicks in.
For example, Fruchter cut his monthly insurance payment to $360 from $900, he said.
The Internal Revenue Service rules limit the amount an HSA owner can deposit in the account to no more than his yearly deductible.
In Fruchter's case, it's $5,700. So even after he maxed out what he could deposit in the account - about $437 per month - he was spending about $800 a month, which included the $360 insurance payment.
That is still $100 less than he was spending for monthly insurance under a typical insurance plan.
"In the worst-case scenario, if I have a catastrophic illness and have to empty my account, I'm still ahead in the year," he said.
And if that doesn't happen, he will bank $5,700.
If his family stays healthy, Fruchter plans to switch to an even higher deductible next year, which will allow him to put away as much as $10,000 annually in his HSA.
He estimated after another year, he could cut his monthly insurance premium to less than $200 a month.
Fruchter is one of the few on the bleeding edge of health insurance, but his experience has convinced him HSAs are the best way to finance health care, and not just for the self-employed.
"Once employees find out about it, they will love it," he said.
"Certainly, some people feel more comfortable with a more typical health plan," said Kelly McGivern, president and CEO of Ohio Association of Health Plans, an association of health insurers.
People like Kearns, who have regular medical expenses and good coverage through Kearns' employer, have more of an "if it ain't broke, don't fix it" attitude.
When Deann Kearns was pregnant with Danny Jr., now 13 months old, she visited the doctor 15 times in nine months, plus a stay in the hospital when Junior was born.
With an HSA, those bills would have cost several thousand dollars, which the Kearns would have had to pay out of their own pocket.
A broken shoulder last year sent Dan Kearns to the emergency room and to physical therapy twice a week for five weeks.
At $125 per therapy session and a $1,200 ER visit, Kearns' insurance doled out $2,450 for his injury. Of that, Kearns said he paid about $325.
Deann Kearns said the HSA would be great for her husband - when he was single. "Now, with a child who needs to go to the doctor's all time, I think it would add up," she said.
Because HSAs have existed for only one year, there are no comprehensive statistics about how widely they are being used.
Hundreds of employer groups have implemented HSAs in their benefits package, said Thomas A. Sullivan, the chief executive officer of Northern Ohio for UnitedHealth Group, the largest provider of HSAs in the country.
Employers have expressed a lot of interest about the plans, but few have signed up so far, said Myrle Kaplan, a senior consultant with Findley Davies, a consulting firm that helps businesses choose what benefits to offer their workers.
"The issue is a challenge to employers in communicating how these plans are used, as well as giving people the tools they need to use them," she said.
The problem is essentially educating employees to a different way of managing their health care, in which the consumer, not the insurance company, bears the responsibility for costs.
"It's about creating awareness of costs," she said.
"And I think the current system has really protected the consumer from the costs."
High-deductible plans usually pay for preventative care, like check-ups. However, prescription drug expenses are not covered until the deductible is reached, Kaplan said.
UnitedHealth is providing tools to help its HSA customers deal with the problems of paying for health care out of pocket, Sullivan said.
For example, through the company's Web site, its customers can find information about which hospitals are the best for certain types of surgeries, as well as cost estimates for those procedures.
Sullivan said he believes HSAs are the future of health care in America. In fact, he added, UnitedHealth is now offering only one choice of health benefits for its employees: HSAs.
For his part, Fruchter is already a believer.
"Whatever I pay now, it's never more than I was paying, and I pay only for what I use," he said.
"Who wants to pay for something they're not using?"
How HSA works
Employees select a high-deductible health insurance plan that includes the health savings account feature. A policy must have a deductible of at least $1,000 for a single person and $2,000 for a family, and require no more than $5,100 in out-of-pocket expenses for an individual and $10,200 for a family.
•The maximum annual contribution your can put in your HSA is the lesser of the plan deductible or $2,650 for individuals and $5,250 for a family.
•The pretax amount, including any employer match, is deposited into an investment account every payday. The money earns returns, it rolls over to the next year when the policy is renewed, and it becomes part of your estate if you die.
•Withdrawals are tax-free as long as you use the money on health care.
Young, healthy single people: The lower health care costs translate into bigger savings accounts.
Health insurance companies: Coverage doesn't kick in until after high deductibles are met.
Alternative medicine users: Tax-free funds can be used for doctor-prescribed medicine.
The uninsured: Price cuts may lure some who can't afford traditional plans.
Who Doesn't Benefit
Those with chronic conditions: Regular out-of-pocket expenses make saving difficult.
Families with young children: If deductible is not waived for preventive care, co-pays may be the way to go.
People in a lower income bracket: They have less money to set aside and get little to no tax benefit.
The elderly: Costly prescription drugs could outweigh premium savings.